On March 18, 2010 President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act. This bill provides tax benefits directly to employers who hire previously unemployed people. The two key benefits are:
1) payroll tax exemption of the employer’s share of Social Security taxes (6.2%) on wages paid to these workers after March 18, 2010
2) employer tax credit of up to $1000 per worker. You will still pay the 1.45% of Medicare tax on the employee. The exemption applies until year end. To qualify the new employee must meet the following criteria:
1) hired anytime this year after February 3, and
2) must have been unemployed 60 days prior to starting work or worked fewer than 40 hours for someone else. The employee must complete IRS Form W-11, stating that he qualifies for this exemption. If the employee remains employed for at least one year,then a $1000 tax credit for the employer will be available when filing the 2011 tax return.
A couple of other details to this: You must not have hired this person to replace someone else just to take advantage of this new law. In other words, if you are replacing someone they must have voluntarily quit or you fired them for cause. The other qualification is that they can’t be related to you. The IRS defines related to you as child, stepchild, parent, stepparent, nieces, nephews, aunt, uncle or in-law. Notice that “spouse” is not on the list. Corporations and Partnerships have a few additional rules about related employees.
It’s late in the year and if you have someone who does qualify, then in all likelihood you have overpaid your 943 (or 941) taxes this year. The 2010 943 form has new lines for this adjustment. Payroll tax liabilities will have to be refigured from the date of hire and refunds are likely this year. You can make this adjustment now if you want to.
More info can be found at: http://www.irs.gov/businesses/small/article/0,,id=220745,00.html and at http://2010hireact.com.